According to biologists, there's a remarkable diversity of life all around you, and the closer you look, the more of it there is. About 2,000 insects inhabit every square yard of your yard, for example. Up 100,000 dust mites could be sleeping in your pillow. Those little green things you see out of the corner of your eye? Those are pixies, and you need to cut down on the candy bars at the Denver airport.

Commentators often focus on the largest stocks in the market: Amazon, Google, General Electric and ExxonMobil. But there's a vibrant world underneath the S&P 500, and it has taken a beating lately. Is this time to jump in?

Given how much stocks in general have risen the past five years, you shouldn't jump into anything with both feet. But small-company value funds, which look for bargains among the beaten-up stocks in the small-cap world, are worth a look.

The Russell 2000 stock index, which measures small-company stock performance, soared 37.0% in 2013, vs. 29.6% for the large-cap Standard and Poor's 500 index. This year has been a bit of a bummer for small-company stocks: The Russell 2000 has fallen 0.8%, while the S&P 500 is up 5.0%. While investors in large-company stocks have become paranoid about how placid the stock market is, small-caps have been more volatile, says Marc Roberts, co- manager of FAM Small Cap Investor Fund (ticker: FAMFX).

Part of that is because some sectors that flew high in 2013, such as biotech and technology, came down hard this year. "A lot of hot money had gone into that space," Roberts says.

But more sober sectors got smacked, too, and those are areas that appeal to value investors, who look for bargains. "One area where we're seeing blood in the streets is retail," says Roberts. The winter weather was a total buzzkill for retailers: Same-store sales were down, especially in specialty retail and apparel, he says.

In general, in stocks where the consumer had a choice whether or not to buy, the consumer chose not to in the first quarter. (Those types of stocks are called "consumer discretionary" stocks.) At Franklin Small Cap Value (FRVLX), for example, manager Steve Raineri likes Group 1 Automotive (GPI), which owns and operates about 150 car dealerships in the U.S., U.K. and Brazil.

"At one point this year, it was down about 14%," he says. But the stock recovered as investors grew less worried about the company's Brazil operations, and with knowledge that the average U.S. auto was 11.4 years old last year, an all-time high. The stock is up about 13.8% for the year now.

Another small-cap area that's done well this year: real estate investment trusts, which invest in commercial property and pass the income on to investors. REITs fare well when interest rates fall, and, much to everyone's surprise, interest rates have tumbled this year. "It surprised a lot of people who said that interest rates have to go higher," Roberts says.

An example of how well small-cap REITs have done this year is the IQ U.S. Real Estate Small Cap ETF (ROOF), which Roberts' fund doesn't own. It's up 10.3% this year. The fund does own Winthrop Realty Trust (FUR), which is up 37.2% this year and has a 4.32% dividend yield.

Another company that got smacked is Gibraltar Industries (ROCK), which makes building products ranging from roof ventilation to gutters and the cluster mailboxes used in apartment and townhouse developments. Gibraltar also make industrial grill walkways — the type that always seems to be used in gun battles in action movies. But the company has gotten a new chief operating officer from Illinois Tool Works (ITW), Raineri says, and should benefit from any uptick in construction.

As an investor, you'll need to decide whether or not you need a small-cap fund. You can live a perfectly happy life without them. The past 20 years, the Russell 2000 has gained 496%, vs. 518% for the S&P 500. And some small-company funds sell their holdings when they get too big — which is often when they're experiencing their greatest growth.

But small-company value stocks have clobbered both indexes, gaining 657% — so if you're considering a small-cap fund, look for one with a value tilt. Some value funds will also let their cash levels rise if they can't find stocks that are cheap enough, according to their criteria. This isn't a market-timing approach, but rather a side effect of their quest to buy stocks when they're attractively priced.

For those interested in small-company stocks, small-cap value funds are a reasonable approach. You're not going to get the full-on rush that aggressive, growth-oriented funds give you, but you won't wake up in the morning wondering what happened to the little green folk and their magic peanut brittle, either.